What Is the Major Limitation of Using the Payback Period

question 4

Multiple Choice

What is the major limitation of using the payback period as a tool in capital budgeting?

• A) It is difficult to calculate without a computer.
• B) It favors large investments.
• C) It ignores the time value of money.
• D) It does not consider cash flows.

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Definitions:

Available-for-Sale Securities

Financial assets that are held for sale in the short term and which can be converted into cash, generally classified as current assets.

Fair Values

The estimated market value of an asset or liability, based on current market prices.

Unrealized Holding

Refers to the increase or decrease in the value of investments held by the company that have not been sold.

Securities Held

Financial instruments that are owned and held by an investor, including stocks, bonds, or other investments.